How much earnings do I need for an MBA?

Hi all,

I don't have significant earnings but I'd like to do an MBA nonetheless. Can I take out a loan for the total cost of my mba? (200k) Is this wise? How much loan does the average student take out? How easy will it be to pay off 200k debt?

 

It all depends. Are you going to a good school that should get you a good paying job after graduation?

Taking on 200k in debt but then graduating with a 6 figure salary plus bonus makes it fairly easy to pay that back.

make it hard to spot the general by working like a soldier
 
Best Response
Skinnayyy:

It all depends. Are you going to a good school that should get you a good paying job after graduation?

Taking on 200k in debt but then graduating with a 6 figure salary plus bonus makes it fairly easy to pay that back.

REALLY?

Just a quick look at Sallie Mae's site shows fixed APR of 5.74 - 8.88% and repayment terms of 5-15 years. So let's just conservatively say average is 6.5% for 15 years. That payment is roughly $1,800 per month!!!!

You may want to rethink this mystical six figure salary you're seeking. Even that Harvard starting salary is only ~$135k. Quite honestly, that doesn't go near as far as you think.

It is definitely possible to repay the debt, but I would definitely not say it's fairly easy, especially if you want to have a decent lifestyle.

btw - the OP couldn't even use Sallie Mae, so I assume his loan will be less favorable than the example I looked at.

twitter: @CorpFin_Guy
 

I forgot that OP wouldn't be able to use the traditional means that US students can use. My loan repayment term is 20 years, so that makes it even easier to maintain the payments.

Also, OP is on a forum that focuses on high finance where there starting salary for position post MBA are over 100k. Hell, they make over that (bonus included) after undergrad. So no, it's not exactly mystical.

make it hard to spot the general by working like a soldier
 
accountingbyday:
Skinnayyy wrote:

It all depends. Are you going to a good school that should get you a good paying job after graduation?

Taking on 200k in debt but then graduating with a 6 figure salary plus bonus makes it fairly easy to pay that back.

REALLY?

Just a quick look at Sallie Mae's site shows fixed APR of 5.74 - 8.88% and repayment terms of 5-15 years. So let's just conservatively say average is 6.5% for 15 years. That payment is roughly $1,800 per month!!!!

You may want to rethink this mystical six figure salary you're seeking. Even that Harvard starting salary is only ~$135k. Quite honestly, that doesn't go near as far as you think.

It is definitely possible to repay the debt, but I would definitely not say it's fairly easy, especially if you want to have a decent lifestyle.

btw - the OP couldn't even use Sallie Mae, so I assume his loan will be less favorable than the example I looked at.

Disagree, at M7 schools, it's not "Mystical" it's the norm. If you're concerned about money, you will almost certainly get a job that pays a base of at least $120k (plus signing bonus, and year end bonus, and potentially stock options). The people who make less, make less because they make a conscious decision to do so (e.g. go into marketing at CPG [which has a huge salary increase when you're promoted to brand manager anyways], education, non-profit, start-ups, etc). If you're concerned about money, you can find a finance, consulting, corp 500 job that pays well, 99% of the time.

Realistically, worst case scenario is more around $150k in debt....you get summer internship money, and signing bonus from ft offer, that reduces the amount of money you take out.

$1800 a month isn't that much if you have a a six figure salary. Let's assume worst case tax situation, you're paying $30k a year pre-tax salary. Your $120k salary becomes $90k...still a nice chunk of money (and again, you'll be getting year end money, and potentially stock options). And that's before you even consider the very fast salary progression you get from MBA (usually 10-15% per year the first few years).

To summarize: Unless your salary is already over $100k, you will end up making more after your MBA, even after the loan payments....plus you get to party for 2 years, which is pretty fun.

 

You'll have great difficulty taking out a loan for the majority of U.S. MBA programs. Foreign students have much higher default rates than U.S. students even at really good business schools so most banks won't give them a traditional private loan. It's also really hard to collect on a defaulted loan with no collateral from a person living in another country.

Most top schools have made arrangements to underwrite and accept risk for loans that are serviced by private lending partners, but it's uncommon beyond the top 10-15 schools. So if you get into a really good school that has a program in place to accept your default risk, you can take on debt, but otherwise it's an uphill climb if that's your only financing option.

 

Thanks all. I am only planning to go to a top 10 school anyways. And plan doing ib or pe after. So, I think it makes sense after all.

But those interest rates are such rip-offs! Modern loan sharks...

$1800 a month isn't that much if you have a a six figure salary. Let's assume worst case tax situation, you're paying $30k a year pre-tax salary. Your $120k salary becomes $90k...still a nice chunk of money (and again, you'll be getting year end money, and potentially stock options). And that's before you even consider the very fast salary progression you get from MBA (usually 10-15% per year the first few years).

$120k minus taxes is around $75k after-tax (optimistically). Then $25k for housing (at least) in NYC and $25k in student loans. That's $25k left. Not exactly a luxurious lifestyle tbh.

Disclaimer: I presumed MBA loans are not tax-deductible - not sure if this is applicable in the US.

 
LiamNeeson:
Quote:
$1800 a month isn't that much if you have a a six figure salary. Let's assume worst case tax situation, you're paying $30k a year pre-tax salary. Your $120k salary becomes $90k...still a nice chunk of money (and again, you'll be getting year end money, and potentially stock options). And that's before you even consider the very fast salary progression you get from MBA (usually 10-15% per year the first few years).

$120k minus taxes is around $75k after-tax (optimistically). Then $25k for housing (at least) in NYC and $25k in student loans. That's $25k left. Not exactly a luxurious lifestyle tbh.

Disclaimer: I presumed MBA loans are not tax-deductible - not sure if this is applicable in the US.

Student loan is tax-deductible only when your adjusted gross income is less than 75K (single) or 150K (couple). So most post-MBA students won't be able to claim it.

I think 120K post-MBA with student loan gonna be difficult if live in NYC

 
LiamNeeson:
Quote:
$1800 a month isn't that much if you have a a six figure salary. Let's assume worst case tax situation, you're paying $30k a year pre-tax salary. Your $120k salary becomes $90k...still a nice chunk of money (and again, you'll be getting year end money, and potentially stock options). And that's before you even consider the very fast salary progression you get from MBA (usually 10-15% per year the first few years).

$120k minus taxes is around $75k after-tax (optimistically). Then $25k for housing (at least) in NYC and $25k in student loans. That's $25k left. Not exactly a luxurious lifestyle tbh.

Disclaimer: I presumed MBA loans are not tax-deductible - not sure if this is applicable in the US.

I was making a comparison of pre-tax salary. Making $120k per year (pre-tax) with $20k per year in debt payments (post-tax), is functionally the same as making $90k a year (pre-tax). The point was you're still doing well salary wise, even worst case situation, certainly better than most people pre-mba salary.

I don't know why you assume everyone wants to live in NYC, which is not the case with most people. Likewise, if you do plan to work in NYC, the salaries are usually higher anyways (post-mba banking pays a shit ton). Likewise, you don't need to spend $25k per year in housing, especially if you have a wife/gf.

 

It's a question of incremental income. From the sound of it, OP is making ~$50k a year now. An increase to $120k+bonus+faster growth over 35 years is probably in the range of $50-100k incremental after-tax income (including bonus) per year. That's 25-50% ROI per year, more than enough to cover 8% student debt interest. Further, the downside is seriously limited by the fact that you can defer interest and principal payments on most student loans for up to two years if you ever lose your job (although they can't be discharged in bankruptcy). You might have to cut back on your life style in the initial post-grad years, but the numbers definitely make sense for going to an M7 with ambitions to go into IB or PE. That being said, most non-target MBA's are terrible investments, IMO.

 

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